The End of the Org Chart

There isn’t much to do in Maspeth, NY on a weekday afternoon. Nestled next to an expressway on the outer Brooklyn-Queens border, Maspeth’s defining feature is its warehouse district — a collection of gritty, similar-looking buildings next to a small creek and set of train tracks. At peak mid-summer heat, with temperatures north of 90F, Maspeth almost feels like a desert — a mix of industrial stone dunes and sandy brown streets. I know all this, because a bad customer experience incident sent me there.

A week before, my phone broke and I ordered an upgrade replacement to my office (it’s easier to get packages at work). Here’s the remaining minimum viable context: I had a busy week of meetings in the city, the phone was incorrectly shipped to my home in Brooklyn (signature required), neither my phone company nor Fedex could change the delivery address, and I was about to leave for a trip. I had a choice to make: (1) either let the phone get returned to sender and wait another week for a second phone unless I go buy a second out of pocket, or (2) go pick up my phone before it got sent back. In Maspeth.

Riding there, I started thinking about the experience, how it could have been prevented, and why ‘customer friction’ happens more with certain business characteristics than others. That thinking led me to a realization I first shared on Twitter: five years from now — at most ten — the best companies won’t have “departments” or “business units” as they exist today. Or if they do, they’ll look very different from the today’s accounting team down the hall that reviews spreadsheets with methodical precision.

Departments Will Get Smaller

The first way departments will look a lot different is their size. A lot has been said about technology’s impact on labor, productivity, and job growth. One can even argue it’s a primary driving force behind the economic inequality gap that’s helping populist politicians rally support in America and the United Kingdom. I won’t go into that here, other than to highlight the simple fact that — thanks largely to technology — fewer people can be more productive, and, in turn, create more economic value. In 1999, according to analysis of Labor Department data by the Kauffman Foundation, the typical new business had 7.7 employees. Ten years later, the average number of employees per new business dropped to 4.7, and has continued to decline in the years since since. More startups are being created — in the US an estimated 131 startups were launched for every 100,000 people in 2015— but they’re smaller and leaner, particularly technology startups.

Despite the reduction in employee size, thanks to trends like low-cost cloud computing, software-enabled process improvement, and the nascent-but-burgeoning AI (artificial intelligence) space, technology startups are creating more value per employee they hire. To illustrate this, I compared the ten largest private technology startups against the ten largest companies in the Fortune 500 in terms of corporate value per employee (for private companies I used Fortune’s “Unicorn List” listed valuations as of July 21, 2016).

Here’s the top ten in the Fortune 500:

You can make a couple different observations about the data, which is skewed some by Walmart’s massive 2.3 million global employees, but, taken together, the average top company in the Fortune 500 generates roughly half a million dollars ($544,844) in market cap per employee. The only technology company on the list is Apple, which I’m fine including because they remain a hardware company. The other notable thing is that, outside of Apple and Exxon Mobil, the two ‘value outliers’, value creation in the Fortune 500 is pretty flat and consistent. UnitedHealth, CVS, and General Motors all employ roughly the same number of people, and don’t get a particularly high amount of ‘value leverage’ on their talent.

Now let’s look at the top tech startups:

And there it is: top technology startups generate, on average, 10X the value per employee than their top Fortune 500 counterparts. Palantir, for example, the enigmatic and occasionally turbulent data science firm co-founded by the equally-if-not-more-polarizing Peter Thiel, has created 5% of the enterprise value of AT&T [even accounting for recent valuation mark-downs by the startup’s investors], with a fraction (less than 1%) of the telecomm giant’s workforce.

I don’t think this difference in value per employee has much to do in the difference between public and private market valuations; it has a lot more to do with the future revenue and growth expectations for technology startups, as well as their superior ability to scale their operations.

The right technology lets fewer employees create more value (and productivity output). As technologies like AI, workflow automation, and predictive analytics continue to mature and achieve mainstream adoption, corporate departments will shrink in size, increase in specialization, and operate more like a federation of interconnected startups under a broader business model umbrella. In the future, we’ll have fewer co-workers, but more collaborators — both people and software programs, the same way the world’s most effective chess “player” is a human supported by machine intelligence. And, as I alluded to earlier, if you and your family’s livelihood are on the wrong side of this skills divide, you have my sympathy. Outside of the digital democratization of free educational resources, this is not a good trend for you, at least near-term.

Departments Will Integrate and Interconnect

But corporate departments aren’t just going to get smaller, the boundaries between them will start to blur altogether. Technology will play a large role in furthering this trend, but org consolidation will also be driven by another mandate as well: customer experience.

Imagine you’re a customer, you order a phone from AT&T’s website, and it ends up getting shipped to Maspeth, NY instead of your home. Understandably, you’re not happy, so you send AT&T a message on social media because that’s the easiest way to contact them.

Ideally, AT&T gets your message, responds fast, resolves the order issue, and quickly gets you the product you want.

But here’s how this really works today:

You chat to AT&T. It’s seen by a social media manager who routes it to a customer service representative in a different office. This service rep doesn’t know and has never talked to anyone on the website team, the team managing the site you ordered from. Your purchase data is in some CRM or database, but the service rep doesn’t know where to find it, so they have to follow up with you to get more information. You reply and give it to them, but there isn’t much AT&T can do because your shipment is now in Fedex’s hands, and AT&T and Fedex’s order tracking systems don’t talk to each other.

As a customer, you purchased one product and care about one result, but on the other side of the fence, you interacted with at least five separate AT&T departments: (1) corporate communications (social media), (2) digital marketing (website), as well as the designers and agencies they collaborate with, (3) customer service, (4) the CRM/data team(s), and (5) order fulfillment/supply chain.

This is a common, yet problematic organization structure a lot of businesses are working hard to undo for two, somewhat interrelated reasons: data and customer experience.

First, classic department segmentation creates ownership and accountability issues. When your purchase touches multiple departments, who’s responsible for the overall experience? If each team is responsible for only their piece of the pie, the message can end up inconsistent, or the overall experience may just suck. On the other hand, if there is centralized accountability for customer experience (say, with the CMO or Chief Customer Officer), and we give them the benefit of the doubt that each team’s motivations and incentives are also aligned (reality: they’re not), then you’ve got five departments in a bureaucratic, multi-thousand person company trying to design and agree on a business process by committee, which takes forever. To give you an example, a friend of mine who left a startup to take on a digital transformation role at a large company recently lamented: “I can’t even figure out who’s responsible for certain things. It’s could take me a year just to get to the point where I can actually start doing my job.”

Then there’s the data issue, which can be summed up simply with the following question: can anyone in the company who needs it find out everything the business *should* know about someone or something? Accounting for data security and any regulatory requirements around how information is used and shared, every company should pursue a data strategy that makes it easy for every employee to find the information they need and act on it, on-demand. On the other hand, this doesn’t happen when different departments rely on silo’d data sources, or can’t access data that is centrally warehoused. But in the business world this happens all the time — the marketing department uses their budget to buy one set of technologies, the customer service team uses their budget to buy the tech they want, and there isn’t enough thought or work up front to make sure they work well together and share data. Then business decision-making and customer experience suffer as a result.

Third, structure creates inertia, and the wrong structure creates both intellectual and physical boundaries within a company. Structure should follow strategy, but all too often in business, it works the other way around. Each department limits the scope of its ambitions as soon as they start to extend beyond conventional boundaries, mandates, or ways of thinking. Don’t be the organization that defaults to optimizing for the decisions and results it’s already getting.

It’s very clear successful businesses are going to — and will continue to increasingly — consolidate and interconnect departments in order to (1) reduce external friction when buying or interacting with the brand, (2) reduce internal operational friction between teams, (3) minimize decision points and appoint single ‘owners’ responsible for making a decision and accountable for the results, and (4) create parallel organizations that unify and align customer experience and data management. Translation: they’re going to be smaller; make faster, more informed decisions; and be customer- and data-centric from day one.

In the future of work, you’re doing something to (a) grow the brand, (b) increase revenue / decrease costs, (c) make customers happy, (d) build and improve the product, and/or (e) make (a) through (d) work better / scale faster [re: data, ops, technology]. All of these transcend the ‘department’ model of organizing most companies practice today. After all, does it matter whether or not someone works in ‘Customer Service’ when the entire company is working in service of its customers?

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The End of the Org Chart

In recent years, we’ve seen profound changes in the jobs we do and how we do them. What we’ve yet to see is the related — and, in my view, very necessary — reshaping of how we organize for work. Yes, more startups are getting started, and a greater percentage of people today earn a living as freelancers or through service economy employment, but for the most part companies and corporate departments still look and act the same. I expect that to change meaningfully in the next five to ten years, as companies increasingly organize (or re-organize) into a small set of interconnected and interdependent ‘discipline nodes’ that orbit a few central service hubs for foundational elements like brand and data. There are both optimistic and pessimistic lenses from which to view this change — and a reality that sits somewhere in the middle — but the trend is clear: you’ll have a lot fewer [human] co-workers in the future, and how you describe what you do on a resume is likely to look very different than what you have written down today.

If you found this helpful, share it with a friend, teammate or your network

Thanks for sharing clear, data-supported thoughts on where business is headed and the ways companies will need to change their organizations. I’ve seen and been a part of solving for the struggle the needs for quicker responses, pivots and increased collaboration in pretty large companies. The need to solve for this struggle is clear; the opportunity is in planning and managing a holistic shift for existing companies that want to remain competitive in this new reality of business without fundamentally breaking them. I think this is one of the reasons design- and systems-thinking is on the rise in business contexts–the user as the customer and employee is coming into focus and flexibility is key.
Thanks again!